Why Momenta Offers A Unique Opportunity In The Pharmaceutical Industry

Momenta (NASDAQ:MNTA) is a pharmaceutical company that focuses on developing generic or biosimilar versions of extremely complex drugs. The biologic market brings in over $100 billion a year in revenue so even if Momenta can grab a tiny portion of that market with its generics its stock price should take off.

Current Product

Lovenox is Momenta's first and only product on the market so far. Lovenox is a low molecular weight heparin that is used mainly for DVT treatment and prophylaxis. Momenta developed its generic version of Lovenox in collaboration with Sandoz and beat all others to the market by about 15 months. While it started off as a huge success, recent competition has put a huge dent in Momenta's cash flows. Sandoz recently reported sales of $47 million in the first quarter compared to $85 million for the fourth quarter of 2012. As Sandoz's sales have dropped so have Momenta's royalties. Royalties from Lovenox were only $5.4 million in the first quarter, which was one of the main reasons for reporting a $24 million loss. While Lovenox was an important drug for Momenta by getting its feet wet and testing its "enhanced analytics" concept, I wouldn't consider it too important moving forward. Even so Momenta is still in the process of litigating Amphastar and is taking the case to the Supreme Court so there is the possibility of some damages to be received down the road.

Biosimilars

I am including Copaxone in this section even though Momenta doesn't technically consider it a Biosimilar. Momenta has partnered up with its Lovenox partner Sandoz, which is a unit of Novartis (NYSE:NVS). Copaxone represents Momenta's next opportunity to earn some much needed cash. It is also a huge opportunity with Teva (NYSE:TEVA) reporting $1.1 billion in Copaxone sales in the first quarter. There are a few issues to be aware of with Momenta's quest for a generic Copaxone. The first is Teva's patent. Teva has a variety of patents protecting Copaxone, most expire in May 2014, but one doesn't expire until September 2015. Momenta is hopeful that it can get the September 2015 patent struck down and release its generic version of Copaxone in 2014. Currently they are appealing a decision made in the district court to uphold all the patents. The second issue is the FDA's approval process. Since Copaxone isn't a biologic this allows Momenta to file it as an ANDA (Abbreviated New Drug Application). This basically means Momenta doesn't have to put its generic form of Copaxone through clinical trials proving its effectiveness. It also means if approved it can be marketed as an interchangeable product. In order to protect its product Teva has filed a petition that requests that the FDA demand clinical studies before approving a generic version of Copaxone. If the FDA grants Teva's request it will add considerable costs to the approval process for Momenta. Currently we don't know what the FDA will do but Momenta seems pretty confident the FDA will rule on its side. The last item of concern is the MS market itself. Copaxone is used to treat multiple sclerosis and has been a mainstay treatment for a number of years, but the market is changing. Novartis and Biogen (NASDAQ:BIIB) both recently entered the market with successful oral treatments, also Teva plans on releasing a 3 times a week version of Copaxone as well. This means there will be less demand for a generic version of Copaxone in the long term.

Regarding true Biosimilars, unfortunately we don't know a whole lot but I will go over what we do know. First of all this is the most promising aspect of the company in my opinion. Biosimilars are a hot area of the pharmaceutical world. Everybody from generic manufactures like Teva, Baxter (BAX), and Actavis (NASDAQ:ACT) to blue blood research pharmaceutical companies like Pfizer (NYSE:PFE) and Novartis are trying to get a piece of the action. Momenta has teamed up with Baxter in an agreement to market 6 biosimilars. Momenta will receive a royalty in the high single digit range, which could double if certain conditions are met. Currently Momenta is working on 3 biosimilars, and the development of these three represent most of their cash burn. Unfortunately we don't know any of the Biologics they are trying to replicate. A drug Momenta calls M923 is the farthest along, we do know that it is used to treat autoimmune and inflammatory diseases. Momenta and Baxter plan to file an IND in 2014 so we should be finding out at least one of the biologics they plan to target within a year or so.

Novel Drugs

While I feel the biosimilar aspect is the most promising part of the company they also have a couple of interesting novel medications as well.

M402

M402 is a heparin based medication that Momenta thinks can be used to treat cancer patients. There is some evidence that heparin can slow the progression of cancer in patients. This table here shows a number of animal studies that used heparin to treat a variety of cancers. Only four of these studies showed a significant decrease in the size of the tumor and almost all of those used high doses of heparin. The problem with high doses of heparin is of course bleeding. Momenta engineered M402 to limit its anticoagulation activity while hopefully keeping its anti tumor effects. A second group of studies that delivered the heparin directly into the peritoneal cavity were much more successful. As the linked article mentioned this probably means that high concentrations of heparin are needed to get a significant effect. Since M402 lacks the anticoagulation effect of standard heparin these high doses should be possible. Currently M402 is in Phase I/II trials for the treatment of pancreatic cancer. The study is comparing paclitaxel, M402, and gemcitabine to paclitaxel, placebo, and gemcitabine. The second part of the study won't begin until the middle of 2014 so this drug is a long way out from being on the market, but it is an interesting concept that could be lucrative in the long run.

Sialylated IVIG

Momenta also has a sialylation technology that it has applied to IVIG. The sialylation process involves adding sialic acid to proteins to increase their potency. IVIG is used for a variety of disease states and the global market is over $6 billion annually. This drug is a long way from reaching the market as it hasn't even started clinical trials yet. If it does eventually become marketable Momenta could team up with biosimilar partner Baxter, as they are a big player in the IVIG market.

Cash Position

The combination of decreased Lovenox royalties and a ramp up in Research and Development have caused Momenta to start reporting significant losses last quarter. Luckily for them they have a decent amount of cash on hand from when Lovenox royalties were much higher. Currently Momenta has over $320 million in cash and management plans to spend about $30 million per quarter. So in my eyes if Momenta hits a snag getting its generic version of Copaxone approved you might want to keep your eyes out for an offering.

Conclusion

To conclude the reason I like Momenta so much is I feel they are the purest play on the upcoming biosimilar boom, which should play out over the next few years. Their two promising yet early stage novel medications are just the cherry on top. However Momenta is far from a sure thing so investors should be cautious. They are involved in a number of lawsuits that don't seem to be going their way (Lovenox and Copaxone). There is also a large amount of uncertainty as to how the biosimilar market will play out. Since it's still in its infancy there are still a number of unanswered questions. The biggest in my eyes are will doctors be accepting of biosimilars and how much is it going to cost to prove their effectiveness to the FDA. Even with these risks I think the potential of Momenta is too much to pass up.

Disclosure: I am long PFE, MNTA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.